Most people believe — and research backs them up — that great customer experience drives revenue growth. But who claims credit for these successes? Marketing departments will point to advertising campaigns and brand awareness efforts that coincide with above-normal sales growth. Product teams can quantify the impact of specific features on customer satisfaction or increased revenue. Sales teams of course view themselves as the go-to group for bringing revenue in the door. But what about Human Resource departments?
Employees, especially customer-facing employees, would seem to play a central role in customer experience. As consumers in our daily lives, this link seems intuitive: a single interaction with an employee can make or break your experience in a store, at the doctor’s office, on a telephone call, or even via virtual interactions such as chat or social media. Yet, for executives leading businesses, the role employees play in creating a great customer experience, or more generally in driving revenue, tends to be a lot less clear — because it can be so difficult to quantify.
Recent research has begun to explore this link, showing that companies that perform well on employee experience metrics also tend to perform well on customer experience metrics, and suggesting that improvements in employee satisfaction can drive improvements in customer satisfaction. But these studies have limits when it comes to establishing a causal link. Because the results are based on organization-level data, we can’t say for sure that employee metrics are really what’s driving business outcomes — and not for example a bad press cycle or a great new product launch that’s impacting both employees and customers.
We wanted to go a step further and see whether we could get closer to identifying — and quantifying — this causal impact of employees on customer experience and business outcomes like revenue and profits. Proving this out would not only represent compelling new evidence about how much employee investments matter, but also show executives the power of quantifying these ROIs in their own organizations.
In order to do so, we needed to get internal data from an organization whose business relied heavily on customer-facing employees. We settled on a large global retail brand that agreed to share its anonymized data for research purposes. To zero in on the impact of employees on customer decisions, we focused on a particularly service-oriented in-store department — staffed with employees who interact directly with customers, provide them with a bespoke product, and are generally expected to be knowledgeable and helpful. We ultimately obtained three years of in-depth employee and financial data from over 1,000 of these brick-and-mortar locations across the U.S.
Our question was: does the composition of customer-facing employees in these locations — all else equal — affect revenue and profits?
The results were striking. Not only were we able to establish a clear link between employees and revenue, but the impact was substantial. In fact, if an average store could move from the bottom quartile to the top quartile in each of the employee experience metrics we studied, they would increase their revenue by more than 50%, and profits by nearly as much.
Here’s how we did it.
The analysis: Breaking down the siloes between employee and financial data
First, we took monthly revenue and profit statements from each of these stores. We standardized these financial outcomes by dividing by the total employee-hours worked in each store each month. The resulting variables — hourly revenue and profit — represent a measure of employee or labor productivity that can be compared across stores of different sizes.
Next, in order to quantify the employee side of the equation, we selected a handful of metrics which were readily available in the company’s standard internal HR information system, including employee longevity, full time/part time status, internal rotations, and skill level. These were not of course meant to represent an exhaustive catalog of employee experience generally. There are plenty of other components of employee experience that are likely to affect sales and service quality, such as self-reported employee well-being, within-team diversity, formal training, or the use of employee communication/productivity technologies. When data on these other factors are available, they can easily be incorporated into the analysis framework we describe. (In fact, doing so is likely to reveal that employees have even larger effects on customer satisfaction and financial outcomes than we estimate here.) Still, our metrics constitute core aspects of employee experience, and as we shall see, strongly impact sales and profitability.
By combining financial data with people data — two sources of information that tend to be siloed in different departments and rarely integrated — we were set up to answer our central question: whether the employee composition at the start of each month would impact the sales generated in that store over the course of that month.
To isolate the effects of employees on revenue, we used multivariate regressions and controlled for factors like time of year, demographics and income of surrounding areas, and local demand shocks. Again, the fact that we studied multiple business units from a single company and one nationally recognized brand was crucial. This represented a powerful control variable, because we were able to hold constant things like brand strength and reputation over time, quality of equipment and website, and nature of business. In comparison to studies that use only external, company-level data, this enabled us to more effectively isolate the causal effects of employee metrics on customer decisions and revenue.
All together with our control variables and the panel nature of the data, we were confident that our estimates of the impact of employee metrics would represent a causal relationship: employee experience drives customer experience which in turn drives revenue growth.
The results: Employee experience drives revenue
We indeed found that changes in these measures of employee experience were a strong driver of subsequent revenue. Put simply, stores whose customer-facing employee base was more tenured, had more experience in prior rotations, was higher skilled, and was more skewed towards full time generated far more sales per hour. In fact, if an average store could move from the bottom quartile of performance to the top quartile in each of the four dimensions it would go from generating $57 per person-hour worked to $87 per person-hour. That’s more than a 50% increase in revenue. And these revenue increases were not accompanied by skyrocketing expenses. In fact, a parallel analysis of operating profits showed that a similar shift in employee experience would result in a 45% increase in profits per person-hour, from $41 to $59.
These differences are dramatic. Consider a simple ROI calculation of moving a store from the bottom quartile to the top quartile. The store currently spends $16 per employee-hour and generates $41 in profits. By investing an additional $12 per hour to get to the top quartile of employee experience, the store will earn an extra $18 per hour of profit. That’s a 150% ROI!
To be sure, this ROI calculation is simplistic and perhaps too ambitious to reflect a realistic strategy. Improving employee metrics so dramatically might not be feasible overnight, and our back-of-the-envelope accounting logic doesn’t include other associated costs (e.g., of implementing a technology for employees designed to keep them happier and reduce turnover) nor does it acknowledge the time-dynamic effects of realizing impact. In our research, we also considered more realistic scenarios and modeled them within more sophisticated accounting frameworks. One example supposed the CHRO set targets for each store — stores in the bottom half of each metric have to raise their performance up to the median, and stores in the third quartile have to raise their performance up to the 75th percentile — which, if successfully achieved, would correspond to a 6% increase in total annual revenue across the company as a whole. With some basic assumptions about discount rates, time to impact, and additional up-front costs, we find that the 5-year ROI of this employee investment would be around 30%, and the 10-year ROI would be in excess of 80%.
This is just an illustrative example and we are not here to debate specific choices about feasible talent management strategies or accounting parameters. We leave these decisions to on-the-ground store managers and experts in financial modeling — our point is simple. Establishing a clear link between employee experience metrics and financial outcomes, and quantifying this relationship paves the way for both data-driven talent strategies and concrete ROI calculations for people-related investments.
The takeaway: Empowering HR to make their business case
The numbers we present here are of course to some extent specific to the company that we studied. But we believe the effects we’ve uncovered are large enough to convince executives that they need to recognize the impact their people have on customer experience and revenue. Any organization that has customer-facing employees should realize that they matter immensely to business success. They are not simply a cost to be minimized — as retail, call center, and service employees are far too often thought of by executives — but potentially very high impact investments. How much is it worth to your organization to reduce turnover of top talent by 20%? How about to improve employee satisfaction scores by 10%? How much is it costing your organization not to know these answers?
Executives might be more accustomed to seeing business cases and ROI calculations from marketing and sales teams, but they should start empowering talent departments to make their own case. Just imagine an HR leader presenting numbers like these the next time they are seeking budget for a training program or an employee wellness software.
By capturing and connecting the right data, executives will begin to see the link between employees, customers, and revenue. The results may inspire them to take a fresh look at the role CHROs play in corporate growth. Indeed, with business cases like this, HR should finally be able to shed its age-old “cost-center” reputation and start stepping up to its rightful place — a strategic function that drives both customer experience and revenue. The stage will then be set for what we believe will constitute the next generation of solutions: technologies that don’t just integrate across, but fundamentally break down the silos between employee, customer, and business data; that build this kind of intelligence into every business process; and that solve for the employee-customer-business synergy from the beginning.
Hiring a Remote Worker? It Takes More Than an Internet Connection
Federal data continues to show near-record numbers of job openings across the country. As of April 2022, 33.4% of business owners were still having trouble hiring paid employees, according to the most recent Small Business Pulse Survey from the U.S. Census Bureau.
If your business has an open seat for a work-from-home job — or one that could be — a remote worker may help fill it. But before that can happen, you’ll need to handle more than just basic barriers, like equipment or cybersecurity. Here’s what you need to know to hire a remote employee.
1. Figure out the logistics
If you hire an employee in a new state from wherever your small business currently operates, you’ll be subject to that state’s employment laws and payroll taxes. You’ll also need workers’ compensation insurance in each state where you have employees.
The more far-flung your team gets, the more likely you may need to hire a human resources staffer, consultant or vendor — eating into your budget for new roles.
“If you want to keep things simple, stay within your state,” says Megan Dilley, communications director at Distribute, a consulting firm that specializes in remote work.
You can also turn to a freelancer-for-hire service like Fiverr or Upwork to simplify the hiring process.
Tessa Gomes, a Hawaii-based wedding planner, hired a team of five contractors through Upwork earlier this year.
“It just makes so much more sense than me trying to do it individually,” Gomes says. “It’s like [my] pool of human resources just grew tenfold.”
2. Define your company and the role
When writing your job description, make sure it includes details about your remote-work environment.
“The definitions [of ‘remote’] are all pretty fuzzy,” Dilley says. “So as much as you can, be very clear and transparent from the get-go.”
For example, if you expect employees to clock in at 9 a.m. Eastern time each day, to come to the office twice a week or to travel for a quarterly meeting, say so on the job listing.
Polish up your company website and social media profiles as well. Consider adding some information about your employees and your work environment.
Each company should make sure its online presence explains “who they are, their brand, what their culture is like, how they treat their people, DEI,” says Victoria Neal, an HR knowledge advisor at the Society for Human Resource Management.
You can list job postings on LinkedIn and other job board websites, but Neal says to try sharing job postings through social media or email among people who already follow your work.
“A lot of employers are really utilizing their current user bases” to find new hires, she says.
3. Redesign your interview process
Because interviewers may no longer see candidates in person, you’ll need to educate them about new things.
“Virtual recruiting and virtual interviewing can eliminate some biases,” says Allan Platt, CEO of business consulting firm Clareo. But he adds that they can introduce a whole new set of assumptions, for instance around candidates’ internet connection and home office setup.
To help with this, Platt says his company’s interviews are highly structured and candidates are evaluated on consistent matrices.
“The way that we structure and organize our interviews when we’re doing remote interviews is really important,” Platt says. “Candidates are evaluating us as much as we’re evaluating them. They’re looking for every clue they can get.”
You may also want to tweak your interview structure. For instance, remote workers need to be excellent communicators who can meet deadlines. Asking behavioral interview questions and assigning sample work can help you find candidates who demonstrate those skills.
4. Prepare for day one
Before your new hire joins the team, make sure your workplace operates well asynchronously. Online tools for remote work like Slack can help employees help each other, so a new hire’s manager doesn’t have to field every question — especially if their working hours don’t line up.
On day one, you can help your new employees feel welcome and fully prepared by planning an onboarding program. If you don’t already have documentation for common processes, try to create it before your new hire starts.
Schedule frequent meetings with your new employee at the beginning. As those meetings taper off, Dilley encourages over-communication as the norm.
Spend some time thinking about your own mindset, too. If you’re used to having constant contact with a new employee — especially during their first few weeks — prepare to give up some control.
With remote work, “trust is assumed and not earned,” Dilley says, “which is a bit of a difference in what people used to talk about.”
To Make Better Hires, Learn What Predicts Success
Hiring the best talent remains a persistent struggle for many companies. That’s because they are doing it wrong — often looking at the labor pool for carbon copies of people who are already successful in their roles. But that is being too demanding, particularly during a tight labor market. Instead, employers should borrow an approach from baseball, in which top teams track the performance of new hires and then search for the one or two skills or experiences that predicted their future success. For digital journalists, for instance, it might be the social engagement with published articles. To do this, companies must better connect hiring with performance management.
The current talent struggles of U.S. companies are hardly a new trend. A PwC survey dating 15 years back cited that 93% of CEOs recognized the need to change their strategy for attracting and retaining talent. If organizations have been trying to improve their hiring outcomes for so long, then why are so many still struggling? The short answer is that companies often spend too little time improving how they define and track performance.
A Lasting Problem
Recently, a number of executives have asked us if they still need to worry about recruiting as much given the signs of the economy softening. It’s true that economists expect the Federal Reserve to increase interest rates in an attempt to curb inflation, which is expected to increase unemployment. However, as Covid-19 has taught us, not every downturn is the same, and there are strong indications that hiring will continue to be a large obstacle for many companies.
In 2017 the U.S. Bureau of Labor Statistics issued a press release, stating that the number of unfilled jobs had reached 6.2 million, a historical high. That record was then surpassed in 2018 and then again in 2019 when the number of unfilled jobs reached 7.5 million. That number is now at 10.7 million, 43% higher than the prior record. As a result, there are currently two job openings for every person who is unemployed.
It seems unlikely that such a vast imbalance in the labor market will be resolved by even a recession. This is especially true for certain pockets of the economy that have a backlog of open roles due to Covid-19, and also for parts of the labor force, such as college graduates and other highly skilled professions, that have historically experienced relatively low unemployment even during economic downturns.
Companies have no choice — they must learn to hire better. So, how?
Emulate Moneyball, Not Frankenstein
In a knowledge-based economy individuals can contribute to organizations in an increasing number of ways. Envision a tech company with three successful product managers; Kate, John, and Aditi. Kate’s key to success is her data-driven approach to understanding customer needs, while John’s strength is an intuitive approach to product design and Aditi’s is her ability to empower her teams. As long as all three are successful, their employer is happy and gives them the freedom to do their work as they please.
The problem arises when their employer wants to hire a fourth product manager. Recognizing that all three product managers bring valuable skills to the organization, the tech firm writes the Kate+John+Aditi job description. This results in a Frankenstein talent strategy, focused on candidates who check the box on all dimensions as opposed to those with one clear superpower.
Compare this to the Moneyball approach to recruiting. While baseball players could contribute to the team in a number of ways, Billy Beane questioned the age-old quest for players who contributed to all of them. Instead Beane sought a portfolio of players, each making unique contributions. In other words, he reduced the number of criteria he expected his recruits to excel at. He did this by giving a lot of thought to what constituted success in each role. Note that he did not go with the broad definition of success, such as “helping us win the game in a variety of ways,” but instead focused on how each player could contribute to the team in a narrower dimension, such as how good their on-base percentage was. He then applied a razor-sharp focus to finding players who were net-positive contributors by outperforming on one or two criteria, even if it meant lacking in other dimensions.
A Case Study from Graduate School Admissions
We recently collaborated with a large U.S. university to reengineer its MBA admissions process. There was a long-standing belief in this school that the best predictor of a “good student” was the quantitative component of the GMAT. It’s a business school, after all, with rigorous requirements in courses like statistics, economics, and finance. Indeed, some faculty believed everything in the admissions process but quant GMAT was a waste of time. But we followed Billy Beane’s example and, instead of relying on this conventional wisdom, turned to historical data.
The first challenge was to articulate how the school defined performance. For example, should we define good performance as a student with stellar academic achievement or a good career outcome? Should we use starting salary as a proxy for a good career outcome or try to collect their compensation after a few years? How about students that go into meaningful jobs in sectors that don’t pay as well? Discussing these questions made us realize that desirable performance is multi-dimensional, with some dimensions easier to measure than others. We ended up using multiple proxies for even seemingly simple dimensions like academic performance.
In the end our team’s analysis found that quantitative GMAT scores are indeed a reliable predictor of applicants’ academic performance, but it also showed that verbal GMAT scores are as good if not better! Putting more weight on verbal tests scores was a simple shift in the admissions process, but one that lead to admitting a somewhat different student body. And doing things differently provides a competitive advantage relative to schools blindly following conventional wisdom.
How to Get There
Some business leaders we’ve spoken to recognize the need for a more analytical approach to hiring but are intimidated by how to get there. Defining and tracking performance doesn’t need to be a complicated, multi-year project where you start producing troves of new performance data. You often have the data you need; it just requires some hard thinking around how to utilize it.
Start by defining the outcomes you want to see for your team or organization. Then work creatively to measure those results and how to attribute those outcomes to the work of various individuals. The initial reaction from many executives, particularly in white collar industries, is that attributing such results to any single individual will be nearly impossible in their profession. However, more often than not we’ve been able to find ways to do this. A digital news site we worked with, for example, argued that a good news piece could come in many shapes and forms and therefore only relied on the instincts of their senior team to identify and try to recruit up-and-coming talent. We collaboratively came up with a few hypotheses on how to better identify future stars, and after testing these were able to show that the number of social media comments on previously published articles was a strong predictor of future success.
Where output data on desirable organizational results is truly not possible to define, input data on employee activities can be useful. A chair manufacturer we worked with was giving up revenues as it could not hire enough people to fulfill their orders. They also struggled with high employee attrition and high absence rates. Using their internal data, we were able to show that female workers — a heavily underrepresented group in the factory — had the least absences and were the most loyal workers. This helped them realize the root of their problem was that their recruitment process overlooked women and other qualified candidates, while favoring less productive men.
Yes, implementing the steps above will require your organization to set aside time to tackle complex topics that don’t have obvious answers. For example, should you define financial success for your company as revenue growth, margin growth or an increase in your share price? But in our experience these are conversations you should be having anyway. Because it’s work, not enough organizations do it. As in Moneyball, if you want significantly different results, you have to apply a significantly different approach to looking for talent. This seems obvious but it is in fact rare. To find better talent, begin at the end.
Designing Hospitals that Promote Staff Wellbeing
Even before Covid-19, rates of behavioral health illness were on the rise. In the third year of the pandemic, mental health has accelerated into a crisis, with health care workers in particular facing high levels of stress and burnout. Although mask mandates have been lifted and restrictions have been eased in many areas, caregivers are still in the throes of treating infected patients, while also coping with the fallout of the past two years. This convergence of factors has led to an uptick in mental health issues among health care workers, many of whom report experiencing record-high rates of anxiety and depression compared to the general population.
Previously, designing clinical spaces for well-being was focused primarily on the patient. Now, taking care of patients is table stakes; caring for the people who serve them is crucial to creating and maintaining a high-performing hospital system.
Designing buildings for the well-being of health care staff is not just necessary to curb the mental health crisis among the profession. It’s also critical to buttress the financial fallout that ensues with high turnover, preventing additional strain on a system already taxed from financial losses due to differed treatment during the pandemic.
During Covid, hospitals have seen increased rates of turnover among employees, which is both costly to morale and the bottom line. According to Becker’s Hospital Review, in 2020, the turnover rate for registered nurses increased 2.8 percentage points to 18.7% industry-wide. Each percentage point change translates to approximately $270,000 lost or saved per hospital.
These numbers have prompted hospitals to rethink their approach to the physical environment and incorporate research-based design strategies that improve well-being for both patients and the staff guiding their recovery. Below, we outline three lessons for designing hospitals and clinics based on current projects NBBJ is working on with Massachusetts General Hospital, Atrium Health, Loma Linda University Medical Center, and Montage Health.
Lesson 1: Employee mental health can be part of a building’s identity.
Massachusetts General Hospital (MGH) in Boston is currently building a 482-bed expansion called Cambridge Street that focuses on staff and patient satisfaction, operational efficiency, and environmental stewardship. Several years ago, NBBJ also oversaw the creation of MGH’s 150-bed Lunder Building. Both facilities offer key insights into how seemingly simple design interventions can have a significant impact on the mental well-being of staff members.
It’s important to note that what we recommend are not amenities, even if some may call them that. Rather than focusing on the “nice to have” perks found in tech company headquarters, many of the spaces in MGH’s facility are “must haves” given the fact lives are on the line: stairwells flooded with light, deliberately quiet patient floors, and safer working conditions, for example.
The Lunder building offers plentiful access to daylight through a glass-encased stairwell used only by staff, who have adopted the corridor as a de facto meeting space (nicknamed the “stair conference room”). Staff also use this stairwell as a place to “be alone together” and report that they find comfort watching employees traverse the stairwell while they use the space to think and decompress.
The building further expands staff’s exposure to daylight — which impacts work-related stress and job satisfaction and is found to affect clinician burnout — through corridors that allow staff to access rooms from an exterior wall. Since less noise can reduce stress among caregivers and also help patients recover from illness, the Lunder building uses a variety of sound-absorbing materials and techniques to make the patient floors 35% quieter than typical health care buildings. Other features designed to minimize noise include sliding doors, distributing work zones for clinical staff across the floor rather than in a single location, and elevators and visitor waiting areas located away from patient rooms.
Finally, staff safety is perhaps the most critical “amenity” of all. For example, overexertion — in the form of repetitive routine physical tasks such as bending, stretching, and standing — account for 45.6% of all injuries occurring to nurses, according to a 2018 article published by the U.S. Bureau of Labor Statistics. These injuries can result in musculoskeletal disorders such as sprains and strains that accounted for 8,730 days away from work among nurses in the private industry in 2016. Features such as motorized overhead patient ceiling lifts or full-height glass doors that provide greater situational awareness can help reduce injuries.
Designing buildings in this fashion makes a difference. For example, post-occupancy data from new inpatient units and staff work areas NBBJ designed for Atrium Health indicates that vast majority of employees feel safer and more at ease in the workplace. In the same post-occupancy evaluation, employees mentioned “the collaborative nature of the research floor,” “increased interaction with colleagues,” and “improved team collaboration” as positive aspects of the new building, further illustrating that opportunities for collaboration and interaction improve employee satisfaction.
Lesson 2: Design features can reduce stress in core working spaces.
Many hospitals are embracing support spaces that enable people to choose how they spend their precious break times. These spaces, both “offstage” (where staff can gather or be alone) and “onstage” (where caregivers see patients), allow staff to spend less time navigating a building and more time recharging.
Loma Linda University Medical Center’s expansion in Southern California boasts an open-core design. It features wide corridors, access to daylight, and the distribution of patient and supply rooms along the wings, which allows staff to connect better with each other and patients. In open-core hospitals, major support functions such as staff lockers, break rooms, and conference rooms are in a centralized hub that connects to patient wings along the exterior. This layout reduces the need for staff to travel between patient and supply rooms, the type of inefficient and repetitive physical tasks that can lead to burnout.
In addition to open-core designs, collaborative clinician rooms — such as the new examination rooms at MGH’s Cambridge Street project, which are sized to allow for multidisciplinary consults — reflect the evolving nature of medicine. Collaborative clinician spaces decrease the load on caregivers and their teams while also providing patients with a new, more effective way to navigate their medical journey.
In the future, these recharging spaces could take different forms, which would acknowledge that everyone refuels in a different way. For instance, because the availability of private spaces has been shown to reduce caregiver stress some hospitals are exploring restorative zones with nap areas for their staff that would be located close to the patient unit for ease of use.
Lesson 3: Good design is ultimately good for business.
Health systems such as Montage Health on the Monterey Peninsula are taking advantage of their less-densely-populated location by incorporating nature into the design of their buildings. For example, Montage’s Ohana Center’s garden-like environment and private patios for staff are designed to lower levels of arousal fatigue — the psychological exhaustion that results from sustained stimulation without breaks. Arousal fatigue is one of the key factors contributing to burnout among behavioral health caregivers, who have an annual turnover rate of 40%.
Other organizations are exploring solutions such as satellite food lockers, mobile ordering apps, and meal programs that offer discounts for nutritious food options. These types of design interventions are investments in staff longevity; they help to reduce stress and encourage positive lifestyle choices, ultimately supporting the mental and physical well-being of the people charged with helping others recuperate.
Behavioral health challenges existed before the pandemic and will persist after it’s over. Consequently, as health care systems navigate the lingering impacts of the pandemic, it’s more important than ever that they shift towards a more caregiver-centric mindset. Only by creating spaces and implementing solutions that promote staff well-being and patient healing at the same time can they effectively retain and recruit staff and reduce the financial impact of burnout and turnover. Designing buildings to enhance employees’ well-being will help keep them satisfied and productive.